Paraguay: Benefits of the Maquila Regime for foreign business
The topic of today’s article opens up a new avenue of opportunity for businesspeople from across the globe. Maquila, short for maquiladora, is a term that needs unpacking as it will form the principal focus of the information outlined below, and, in short, can be defined as a warehouse or factory that is owned by a business from outside the country where it is located, and has the function of manufacturing goods using the local workforce, before exporting the products to the country of origin of the main business. With this definition established, it is important to understand it in context of the real world, in this case Paraguay, a landlocked country in Latin America exhibiting development in numerous sectors, aided by an expanding cross-border industry and growing community of expats.
All of us have struggled over the past year, and for those of you in positions of ownership with regards to corporations, the economic implications of a pandemic on the scale witnessed with COVID-19 are incomparable with other global disasters. However, business opportunity is beginning to resurface, and one such example is the use of maquilas in Paraguay, especially if you are a business located in either North America or elsewhere in Latin America.
After coming into effect in 1997, Law Nº 1064, businesses of this type have been facilitated and even encouraged within the borders of Paraguay. However, the law is mutually beneficial, as not only are these corporations benefitting from it, said law also established the rules and regulations for the importing and exporting companies, in order to ensure the safety and legality of all processes of this type taking place. We briefly touched on the notion of benefits for this type of corporation, and more specifically, they manifest themselves in the form of exonerations, such as:
1. No national, departmental or municipal tax paid
(Though you must pay the 1% Unique Tax)
2. Import of the materials and goods outlined in the Maquila contract
3. The re-exporting of the goods mentioned above
(Also includes goods which underwent repairs or alterations while in Paraguay)
Other benefits of using this type of corporation in Paraguay include:
1. No patent tax for commercial, industrial professions or trades
2. No construction tax on premises approved by the program
3. Exempt from any rates you coincide with during activity due to the Maquila program
4. No VAT charged when leasing anything under the program
5. Anyone is able to take part in Maquiladora corporation business activity if approved by the Maquila Export Program
6. Highly skilled workforces in Paraguay
7. Asunción, the capital city, has international links through the main airport
8. The running costs of premises is comparatively low when compared with other nations in the region
The aforementioned benefits include some references to trade links and exportation, yet one part of the maquila industry that we did not mention in the above section is the reimportation of goods following assembly in Paraguay. The best way to demonstrate the true potential of Paraguay as a global manufacturing hub for the future is exemplified if we look quickly at the shipping times between the US and China, as China is currently the outsourcing superpower in the manufacturing industry.
Maritime freight takes between 30 and 40 days and delivery of air freight takes between 8 to 10 days, this is inconvenient to say the least, as although the prices are low, a long waiting time in a world of instant gratification presents a difficult logistical battle. Let us apply this same theory to Paraguay, where shipping times between Asunción and Atlanta, Columbus and Portland, to take some examples, is only 4 days. It is clear that there are going to be some cities with a longer transit time, but the previous examples show you the contrast that exists between China and Paraguay. Shorter shipping times allow for supply and demand issues to be solved as well, as products can be assembled and reimported quickly, meaning there is less chance of excess stock stemming from over-purchasing, saving your company money.
In terms of the cost analysis of shipping between both Paraguay and China with the United States, please find below a comparison:
China to US West Coast: 40ft containers recently reached over US$40,000 per unit
US to Asunción: (NY: from US$2,067, Houston: from US$2,088, Miami: from US$2,286)
Asunción to US: From US$1,833 to US$4,867
With recent developments increasing the cost of China to US shipping, the profitability of outsourcing there is further reduced. If we look at this in comparison with the relatively low rates between Paraguay and the US for the same sized container, the benefits mentioned further above tie in nicely with the economic potential that exists by using Paraguay as an alternative for manufacturing.
If you operate a business in the US and have a need to manufacture your products abroad, please feel free to contact us today. At Creimerman, our team of global citizens provide a bespoke service to our clients, and we would love to explore your opportunities in Paraguay and be by your side on your outsourcing journey.